The Inflection Point

Despite the September jobs numbers appearing on the surface to be worse than expected, they were actually good. Job losses were in industries that suffered temporary layoffs due to the storm like restaurants and hotels. That is why the jobs report which asks employers how many they employ was down, but the unemployment rate was up. That data is collected by asking workers if they are employed and the temporarily laid off people said yes, but just not working that week due to the storm.  That person count s as employed so so the unemployment number was very good. Reality is the economy is doing very well, and should continue to grow nicely barring a black swan. It is possible to occur when Trump decertifies Iran and when the US, Japan and S Korea ramp up the threat of military action against N Korea.

Wages are starting to rise faster than inflation, and anyone who is not on opioids or other drugs can get a job of some type these days. It is very possible unemployment will drop below 4% in the next few months. At that point wages start to rise at 3% possibly. The result of all of this will be a very good Christmas, better than forecast as consumers feel more secure, their personal balance sheets are much better as their 401K rises and the value of their house rises, and their credit card debt is still under control. Corporations will be flush with cash and likely will pay bigger bonuses instead of much larger raises.

After nine years of pain, consumers will likely start to spend on Christmas. That will flow through to profits and so to stock prices. Again, barring some international crisis, the economy should be rolling ahead.  If the Republican bozos can stop grandstanding, and start legislating, then tax reform will be passed this quarter, and that will further boost stocks and spending. If they again fail, and Susan Collins and Mc Cain act like idiots again, then there will be a setback, and it will be right around Christmas. Republicans will have completely blown it if tax reform does not pass.

This is the inflection point for Republicans, the economy and Trump. If the economy does perform as well as expected, and if tax reform passes, then the economy will be excellent in 2018, Republicans pick up 6 seats in the Senate, and Trump gets reelected in 2020. As Carville said- it's the economy stupid. If Nixon could get reelected with Watergate just creeping out in the open, then Trump can get reelected if the economy is booming in 2020, and taxes were cut, much as that may seem impossible today. It is very clear now, there was no collusion, and no obstruction, and in the end he will be vindicated, and he will say, it was all fake news and a conspiracy by the Democrats and the press to try to unseat him, and that will play very well in middle America.

The downside to all of this is the Fed will be raising rates faster than expected if the economy is doing really well, and if wages start to rise by over 3%.  Lenders will get more cautious than they already are because they will fear a bubble forming, even if that is not happening. CRE will be happy for the better economy, but a lot less happy as the ten year rises back to maybe 4% in this scenario. The dollar will rise, and that will create some pricing issues for foreign investors. If this scenario does play out, and inflation is picking up, along with rates, then maybe 2018 or 2019 is the right time to be a seller, before something gets over heated, or some geopolitical event upsets the whole thing. We all need to pressure Republicans to stop being jerks, and to pass tax reform this year. Regardless of your politics, it is very good for your business. Everyone in Maine should call Collins and demand she represent her country and not her ego.